How should existing arrangements for the surveillance and supervision of the international financial system be adapted to the challenges posed by increasingly integrated markets? New initiatives, including setting up the Financial Stability Forum, have recently been taken in this area.
In considering ways to strengthen the international financial system, in October 1998 the finance ministers and central bank governors of the Group of Seven industrial countries asked me to consult with other bodies on the arrangements for cooperation and coordination among the various international financial regulatory and supervisory organizations and the international financial institutions and make recommendations on any new structures and arrangements that might be needed.
The Group of Seven subsequently agreed that better processes were needed for monitoring and promoting stability in the inter-national financial system and that the international financial institutions, working closely with the international supervisory and regulatory bodies, should conduct surveillance of national financial sectors and of their regulatory and supervisory regimes.
This process of strengthening financial sector surveillance would include both peer review and the IMF's regular surveillance of its member countries under Article IV of its Articles of Agreement. To this end, the ministers and governors agreed to bring together the key international institutions and national authorities involved in financial sector stability to coordinate their activities in managing and developing policies to foster stability and reduce systemic risk inthe international financial system and to exchange information more systematically on risks to the international financial system.
With this mandate, I consulted representatives of the Group of Seven, the international financial institutions, and various other international bodies. In the course of these consultations, broad consensus emerged on the key areas in the international financial system where improvements were deemed essential to safeguard the proper functioning of the markets.
Various international organizations currently share responsibility for the supervision and surveillance of the international financial system.
The international financial institutions contribute in various ways to strengthening the global financial system:
* the IMF-which, under its Articles of Agreement, is responsible for surveillance of all member countries-monitors developments in the global economy and financial markets; and
* the World Bank, as required by its mandate, uses its expertise to assist developing countries in the design and implementation of reforms to strengthen financial systems, including banking, capital markets, and market infrastructure.
* the Bank for International Settlements (BIS) provides analytical, statistical, and secretariat support for various official groupings working to strengthen the global financial system; and
* the Organization for Economic Cooperation and Development (OECD) participates in the process of macroeconomic and financial surveillance and formulates guidelines for evaluating and improving the framework for corporate governance.
The cooperation and coordination of supervisory practices are carried out by various sector-specific international groupings of regulators and supervisors:
* the Basle Committee on Banking Supervision, which serves as an important rule-setting body in banking supervision;
* the International Organization of Securities Commissions, whose members help each other to promote the integrity of securities and futures markets worldwide; and
* the International Association of Insurance Supervisors...